Released on February 12, 2003
(Next Release on February 20, 2003)

Up, Up, and Away
No, this title does not refer to the “beautiful balloon” that the Fifth Dimension was singing about in their 1967 hit, but about prices for refined petroleum products lately. Between February 3 and February 10, the U.S. average retail price for regular gasoline rose by 8.0 cents per gallon, which ties the largest weekly increase seen since EIA’s weekly survey began in August 1990; the national average price for diesel fuel increased by 12.0 cents per gallon, another weekly record increase; residential heating oil prices increased by 18.1 cents per gallon, the largest weekly increase in 2 years; and residential propane prices increased by 4.5 cents per gallon. As a result, EIA has been inundated in the last few days with phone calls, mostly from the media, asking why prices have increased so much recently.

Well, the short answer to that question is that supplies have diminished (both for crude oil and refined products), while demand has stayed strong. First, crude oil, which is refined to make the petroleum products consumers use, has seen prices generally increasing since early 2002. From early 2002 to early December 2002, the West Texas Intermediate (WTI) spot crude oil price increased from about $20 per barrel to about $27 per barrel, largely as a result of low production levels from OPEC countries. While OPEC increasingly exceeded their quota over this time period, the quota (21.7 million barrels per day) was set so low that even exceeding the quota by 2 million barrels per day was not enough to keep crude oil prices from rising. Then when the general strike in Venezuela dramatically reduced their production beginning in early December 2002, global crude oil supplies dipped further, and as Venezuela’s number 1 crude oil customer, the United States felt this impact more than any other country. The spot price of WTI rose from around $27 per barrel prior to the Venezuelan strike to over $30 per barrel by mid-December, and has stayed above this level since. Additionally, worries about Iraq have also helped to keep crude oil prices high, but even at these high prices, there are still customers buying crude oil, fearful that the price might be even higher in the coming weeks or months. In summary, OPEC production levels in 2002, the Venezuelan strikes, and worries over Iraq have all increased crude oil prices, helping to explain some of the reason product prices have increased.

But product markets themselves have also tightened, particularly since mid-January. Following the Venezuelan strikes, U.S. refiners were able to maintain their inputs into refineries by drawing upon their limited crude oil inventories. However, by mid-January, with U.S. crude oil inventories approaching the Lower Operational Inventory level of 270 million barrels, refiners cut back inputs significantly, beginning with the week ending January 17. As a result, with less going into refineries, output was reduced as well. Refinery production of gasoline, diesel fuel, heating fuel, and other refined petroleum products all declined during the second half of January, just as demand was increasing due, in part, to cold weather in the Northeast. With refinery production down and demand up, product inventories were drawn down to meet the product demand, with many products now below their normal range for this time of year. Thus, product markets have also tightened, which has contributed to rising prices across many refined petroleum products.

Of course, the big question is, “What will prices do in the near future?” As always, that’s a difficult question to answer. But with low crude oil and product inventories, price pressures are not likely to subside without more crude oil supply, enough not only to increase refinery inputs to make more refined products, but also to increase crude oil inventories. Although Venezuelan production is starting to increase and Saudi Arabia, as well as other OPEC countries, reportedly increased production in January, the United States has yet to see this increased oil production. Crude oil imports for the week ending February 10 averaged 7.2 million barrels per day, the lowest weekly average since the week ending January 28, 2000. As a result, crude oil inventories are now at their lowest level since October 1975. A key barometer to watch in coming weeks will be the level of crude oil imports, because crude supplies need to increase significantly in order to pop the balloon and have product prices fall back to levels which customers are more accustomed to paying.

Average U.S. Retail Gasoline Price Rises Above $1.60 per gallon
The U.S. average retail price for regular gasoline rose for the ninth week in a row last week, increasing by 8.0 cents per gallon as of February 10 to end at 160.7 cents per gallon, the highest price since June 11, 2001. This increase tied the record for the largest one-week increase since EIA has been collecting this data. Increasing by a total of 24.7 cents per gallon over the last nine weeks, the average retail price is 50.0 cents per gallon higher than a year ago. Prices throughout the country were up, with the largest increase occurring on the Gulf Coast, where prices rose 8.4 cents to end at 155.6 cents per gallon. Prices were the highest on the West Coast, where the average price for regular gasoline was 167.9 cents per gallon.

Retail diesel fuel prices also increased sharply last week, rising 12.0 cents to a national average of 166.2 cents per gallon as of February 10. This was the highest since diesel prices hit a record of 167.0 cents per gallon on October 16, 2000. This increase is the highest one-week price increase since EIA began collecting this data. Retail diesel prices were up throughout the country, with the largest price increase occurring on the East Coast, where prices rose 14.5 cents per gallon to end at 171.6 cents per gallon, which is 53.7 cents higher than this time last year.

Continued Cold Weather, Tight Supplies Cause Residential Heating Oil Prices to Rise Sharply Residential heating oil prices showed a dramatic increase for the period ending February 10, 2003, as noted above. The average residential heating oil price was 171.6 cents per gallon, up 18.1 cents per gallon from the previous week. Residential heating oil prices are 55.6 cents per gallon higher than last year at this time. Wholesale heating oil prices increased 20.0 cents per gallon this week, to 122.1 cents per gallon.

Residential propane prices increased 4.5 cents per gallon from 143.7 to 148.2 cents per gallon. Residential propane prices are 35.2 cents higher than one year ago. Wholesale propane prices also increased, rising 6.3 cents per gallon, from 78.8 cents to 85.1 cents per gallon.

Milder Weather Moderates Weekly Propane Stockdraw
January’s extended blast of cold temperatures that sent propane inventories plunging a record 18.3 million barrels lower during the month moderated considerably last week with U.S. inventories of propane falling by 2.9 million barrels to end the week of February 7, 2003 at an estimated 29.5 million barrels. But the weekly stockdraw pushed U.S. inventories of propane below the average range for the first time in three years. Regional declines were to a large extent more lopsided than in recent weeks with inventory declines of 2.3 million barrels in the Midwest that accounted for more than 80 percent of the overall weekly stockdraw. The remainder of the weekly stockdraw totaled roughly 0.1 million barrels in the East Coast and about 0.3 million barrels in the Gulf Coast region during this same period. Regional inventories remained unchanged from recent weeks with regard to their respective average ranges with East Coast inventories continuing below the average range while inventories in the Midwest and Gulf Coast regions remained at the lower limit of their average ranges last week.

EIA To Change Release Time for Weekly Petroleum Supply Data
EIA issued a Federal Register notice on February 12, 2003, announcing its policy for the release time of the Weekly Petroleum Status Report (WPSR). Under this policy, the WPSR will be publicly released electronically at 10:30 am EST each Wednesday. For weeks that include holidays, release of the WPSR will typically be delayed by one day. The effective date of this new policy will be February 26, 2003

To access the Federal Register notice, please go to:
http://www.eia.doe.gov/oss/WPSR-release-time-policy-Feb2003.pdf

Note: Text from the previous editions of “This Week In Petroleum” is now accessible through a link at the top right-hand corner of this page.